The panel during the G77 event on debt restructuring. Credit: G77/IPS.

By Tharanga Yakupitiyage and Lyndal Rowlands
UNITED NATIONS, Nov 8 2016 (IPS)

Despite many developing countries facing a very real risk of falling into debt crisis – the current options available to assist countries to manage their debts are surprisingly lacking.

This scenario formed the basis of discussions on Monday 31 October at a Group of 77 (G77) seminar on “Sovereign Debt Vulnerabilities and the Opportunity for a New Debt Workout Mechanism building on the UN General Assembly process.”

“The challenging fact is that many countries…remain vulnerable to debt crises,” said Thai Ambassador and G77 Chair Virachai Plasai in his opening address.

Other speakers at the event echoed Plasai’s sentiments, during discussions moderated by Ambassador Ruben Zamora permanent representative of El Salvador to the UN.

“The dramatic fall in commodity export prices and historically low interest rates have been key ingredients for a scenario which shows disturbing similarities to the build up phase of the third world debt crisis of the 1980s which cost in many countries a ‘lost decade of development’,” said Ambassador Sacha Llorenty, Permanent Representative of the Plurinational State of Bolivia to the United Nations.

Ambassador Llorenty was also the Chair of the United Nations General Assembly Ad Hoc Committee on Sovereign Debt Restructuring Process that resulted in  the adoption of UNGA resolution 69/319 that approved the nine UN principles for sovereign debt restructuring processes.

Speakers also noted that underlying issues, which contributed to previous debt crises, have not been adequately addressed.

“The root of the debt problem has not been tackled or solved therefore the debt crisis should be on the top of the policy agenda,” said Bettina Luise Rürup, Executive Director, Friedrich-Ebert-Stiftung New York Office.

Executive Director of Jubilee USA Eric LeCompte echoed these sentiments noting the importance of preventative measures:

“Financial crisis is a recurring problem. Unless we have something in place that actually is a preventive measure for crises, we are going to see crises become worse and we’re going to see no particular ways to protect vulnerable populations,” he said.

Dessima Williams, Special Advisor of Implementation of SDGs in the Office of the President of the General Assembly noted that despite debt forgiveness efforts for the world’s poorest countries in the 1980s and 1990s debt has again begun to increase since the global economic crisis.

Williams also noted that debt is not only owed to other governments and development banks, but that “a large share of debt is owed to the private sector.”

Marilou Uy, Director of the Secretariat of the Intergovernmental Group of Twenty-Four on International Monetary Affairs and Development (G-24) also noted that increasing private sector debt could be a potential cause for concern:

“A particular worry expressed in the recent International Monetary Fund fiscal monitor … is that while government debt has remained moderate the debt of the corporate sector across major emerging markets has risen sharply in the past few years.”

However despite the serious threats debt crises pose to sustainable development, currently the international mechanisms that exist to address the problem are remarkably lacking.

In his keynote address, American Economist Joseph Stiglitz told delegates at the G77 event that these issues stem from the lack of a sound financial structure.

“The current non-system is flawed and doesn’t work,” he stated as he called for a new debt restructuring process.

Existing “gaps” in the international financial and legal systems have created opportunities for entities such as vulture funds to take advantage of distressed developing nations undermining any progress towards a new debt structure, Stiglitz noted.

Meanwhile, as LeCompte pointed out, governments which fall into debt crisis are unable to declare bankruptcy, since bankruptcy is a measure which is only available at the domestic level.

Previous rounds of debt forgiveness have also proved to be only temporary fixes.

Raphael Otieno, Director of Debt Management Programme, Macroeconomic and Financial Management Institute of Eastern and Southern Africa, said that many African countries “started accumulating debt very aggressively,” after previous rounds of debt forgiveness.

Debt increases in countries like Angola and Ethiopia are “very worrying,” said Otieno.

Meanwhile, the measures imposed on countries to manage their debts can also be financially crippling, as Isidro López Hernández, Deputy and Spokesman on the Audit of Public Debt, Assembly of Madrid, Spain explained. “We are tied in a sort of metal cage,” said Hernández, noting that when the government in Spain has even minor a surplus this must be directed back into debt repayment rather than investing in Spain’s future.

A Fair Debt Workout

Plasai urged for the creation of a “fair, speedy and efficient debt workout” that involves close collaboration between debtors and creditors to resolve unsustainable debt levels.

In order to restore debt sustainability, Stigliz called for the implementation of a “soft law regime” based on the UN General Assembly’s principles on debt restructuring adopted in 2015. These international principles of laws will help encourage cooperation and a “healthier environment” for debtors and creditors, said Stiglitz.

LeCompte echoed similar sentiments, highlighting the importance of laws around responsible and sustainable lending and borrowing.

“We need to figure out, at the United Nations, how do we start to move [debt restructuring] into soft law, how do we start to create a framework and structure that allows…for problems to be worked out in a more responsible way,” he told IPS.

While the threat of debt crises can have significant negative impacts on development, speakers at the event also acknowledged that sustainably managed debt levels can also be beneficial for governments seeking to achieve the Sustainable Development Goals.

“Borrowing is an important tool to finance sustainable development investments. Debt financing can support growth and smoothen the business cycle,” said Nabeel Munir, Deputy Permanent Representative of Pakistan to the United Nations and Vice-President of the Economic and Social Council.

“At the same time, debt needs to be managed prudently,” said Munir.

There sentiments were echoed by Dian Triansyah Djani, Permanent Representative of Indonesia to the United Nations and Chair of the Second Committee at the 71st session of the UN General Assembly:

“I think most people in this room agree that sovereign borrowing is crucial in supporting government to finance investment, particularly in this time, to achieve sustainable development,” said

“At the same time however, it is also equally important to manage the sovereign debts,” said Djani

“We have witnessed one too many instances in which the debt default of one country could put the growth of the global economy into a halt, and hamper efforts to attain its development course.”

However as Ambassador Llorenty noted in closing remarks:

“(Although) the current scenario makes the effort of working towards a statutory framework for debt crisis resolution very relevant, (it is) not feasible in the short term.”

“Nevertheless,” he said, the current General Assembly process is a “step in the right direction.”

Seventy-year old Elise Young’s small box of mixed sweets and biscuits and the plastic bucket containing some ice and a handful of drinks is hardly enough to pay the 18-dollar electricity bill each month and buy food. Credit: Zadie Neufville/IPS

By Zadie Neufville
KINGSTON, Jun 2 2015 (IPS)

For Jamaicans like Roxan Brown, the Caribbean nation’s International Monetary Fund (IMF) successes don’t mean a thing. Seven consecutive tests have been passed but still, the mother of two can’t find work and relies instead on the kindness of friends and family.

The 32-year-old has been in several government-sponsored training programmes and has even filed for help under the Programme of Advancement Through Health and Education (PATH), a safety net set up to assist the poor. But she fails to qualify and can’t understand why.In the long history of Jamaica's on-again off-again relationship with the IMF, it is the poorest of this nation’s 2.8 million people who suffer the heaviest burden. With most earnings going to pay loans, there is nothing left for government assistance.

The single mother spends each day making phone calls, sending messages and making as many trips as she can afford, hopeful that one will result in a job. Roxan is desperate to help her son who graduated high school last year and has qualified for college. Her daughter is in secondary school and is preparing to sit exams.

Several miles away in the south coast village of Denbigh, the two elderly women sitting outside the May Pen Health Centre tell their stories of hardship. Five days a week, they scratch out a meagre living selling a few sweets, biscuits, some bottled water, drinks and fruits to make ends meet. Neither have pensions and none qualify for even the basic of government assistance under PATH.

Seventy-year old Elise Young’s small box of mixed sweets and biscuits and the plastic bucket containing some ice and a handful of drinks is hardy enough to pay the 18-dollar electricity bill each month and buy food.

“It’s very rough but I still have to live,” she said, noting that her daughter, who generally helps out with a few dollars a week, is now unemployed.

Next to her sits Iona Samuels, an on-again-off again vendor who sells a few dozen oranges and bananas to make ends meet. Iona is lucky: she lives rent-free, house-sitting for a friend who lives in Canada. Her on-again off-again business is due to the many times she is unable to restock the plastic crates that serve as her stall because she uses all the cash to buy food and pay water and light bills.

“Sometime I buy two dozen oranges and two dozen bananas and I only sell half. Sometimes I don’t make a profit because I have to sell them for what I pay for them and I have to eat and pay the bills,” she explains.

Iona admits that advancing age has slowed her ability to do more strenuous work. She is concerned that government has no programmes for  “the poor and vulnerable” people like her.

The good fortune that allows Iona to live rent-free also goes against her in her quest for government assistance with her daily expenses.

“I live in a house that is fully furnished, so I am unable to qualify for anything. There is no consideration that the house is not mine. It is my friend’s house. There is a gas stove, and a television so I don’t qualify for help,” Iona complains.

Iona Samuels (left) and her friend Pearl. Credit: Zadie Neufville/IPS

In the long history of Jamaica’s on-again off-again relationship with the IMF, it is the poorest of this nation’s 2.8 million people who suffer the heaviest burden. With most earnings going to pay loans, there is nothing left for government assistance.

Media reports cite information from the U.S.-based Centre for Economic Policy and Research, which states that three years into its latest IMF programming, Jamaica’s economy is suffocating, struggling to reach its current quarterly growth rate of between 0.1 and 0.5 percent.

After 20 years of improvement to the country’s poverty rate, the number of Jamaicans living below the poverty line has ballooned in recent years from 9.9 percent in 2007, to 12.3 in 2008, 16.5 percent in 2009 and 19.9 percent in 2012. And if the 2014 research by the local Adventist Church is correct, today there are 1.1 million Jamaicans living in poverty.

The most pressing problem is the country’s debt, which the government readily admits has severely hampered its economic growth. According to the World Bank website, Jamaica’s debt to GDP (Gross Domestic Product) ratio, estimated at 140 percent at the end of March 2015, is among the highest in the developing world.

For the Portia Simpson Miller-led administration that won the 2011 general elections on a ticket of being a friend of the poor, there is not much caring left, at least not under the IMF. The Planning Institute of Jamaica (PIOJ) reports that while the IMF programme is necessary, it is still not sufficient to unlock the kind of growth necessary to boost the economy and grow jobs.

According to the PIOJ,  “Economic recovery remains fragile” even as the country successfully completed the IMF assessments with improvements in most macro-economic indicators and outlook for growth.

The World Bank states on its website that, “For decades, Jamaica has struggled with low growth, high public debt and many external shocks that further weakened the economy. Over the last 30 years real per capita GDP increased at an average of just one percent per year, making Jamaica one of the slowest growing developing countries in the world.”

Simply put, Jamaica continues to spend far more than it earns. But while individual sectors continue to show improvements, manufacturers and the international community blame the cost of fuel, high energy costs and crime as impediments to growth.

Last year, Jamaica paid the IMF over 136 million dollars more than it received, and the country still owes the World Bank and Inter-American Development Bank over 650 million dollars through 2018. Even so, government continues to struggle to maintain social gains such as free healthcare and free primary and secondary education.

There are those who believe government is not doing enough to create jobs and that the available jobs are going to government supporters. There are those who blame the private sector, and they in turn point to a depreciating dollar, high cost of fuel and high-energy costs. And of course there is crime.

With unemployment rate at an alarming 14.2 percent and youth unemployment estimated at twice the national rate, things are not looking good for Roxan, who falls into that category.

Edited by Kitty Stapp

Alexis Tsipras (centre), Syriza’s charismatic 40-year-old leader, has been campaigning under the banner “Hope is on its way.” Credit: Mirko Isaia/cc by 2.0

By Marianna Fotaki
COVENTRY, England, Jan 24 2015 (IPS)

The European Union should not be afraid of the leftist opposition party Syriza winning the Greek election, but see it as a chance to rediscover its founding principle – the social dimension that created it and without which it cannot survive.

Greece’s entire economy accounts for three per cent of the euro zone’s output but its national debt totals €360 billion or 175 per cent of the country’s GDP and poses a continuous threat to its survival.

Courtesy of Marianna Fotaki

While the crippling debt cannot realistically be paid back in full, the troika of the EU, European Central Bank, and IMF insist that the drastic cuts in public spending must continue.

But if Syriza is successful – as the polls suggest – it promises to renegotiate the terms of the bailout and ask for substantial debt forgiveness, which could change the terms of the debate about the future of the European project.

It would also mean the important, but as yet, unaddressed question of who should bear the costs and risks of the monetary union within and between the euro zone countries is likely to become the centrepiece of such negotiations.

The immense social cost of the austerity policies demanded by the troika has put in question the political and social objectives of an ‘ever closer union’ proclaimed in the EU founding documents.The old poor and the rapidly growing new poor comprise significant sections of Greek society: 20 per cent of children live in poverty, while Greece’s unemployment rate has topped 20 per cent for four consecutive years now and reached almost 27 per cent in 2013.

Formally established through the Treaty of Rome in 1957, the European Economic Community between France, Germany, Italy and the Benelux countries tied closely the economies of erstwhile foes, rendering the possibility of another disastrous war unaffordable. Yet the ultimate goal of integration was to bring about ‘the constant improvements of the living and working conditions of their peoples’.

The European project has been exceptionally successful in achieving peaceful collaboration and prosperity by progressively extending these stated benefits to an increasing number of member countries, with the EU now being the world’s largest economy.

Since the economic crisis of 2007, however, GDP per capita and gross disposable household incomes have declined across the EU and have not yet returned to their pre-crisis levels in many countries. Unemployment is at record high levels, with Greece and Spain topping the numbers of long-term unemployed youth.

There are also deep inequalities within the euro zone. Strong economies that are major exporters have benefitted from free trade and the fixed exchange rate mechanism protecting their goods from price fluctuations, but the euro has hurt the least competitive economies by depriving them of a currency flexibility that could have been used to respond to the crisis.

Without substantial transfers between weaker and stronger economies, which accounts for only 1.13 per cent of the EU’s budget at present, there is no effective mechanism for risk sharing among the member states and for addressing the consequences of the crisis in the euro zone.

But the EU was founded on the premise of solidarity and not as a free trade zone only. Economic growth was regarded as a means for achieving desirable political and social goals through the process of painstaking institution building.

With 500 million citizens and a combined GDP of €12.9 trillion in 2012 shared among its 27 members the EU is better placed than ever to live up to its founding principles. The member states that benefitted from the common currency should lead in offering meaningful support rather than decimating their weaker members in a time of crisis by forcing austerity measures upon them.

This is not denying the responsibility for reckless borrowing resting with the successive Greek governments and their supporters. However, the logic of a collective punishment of the most vulnerable groups of the population must be rejected.

The old poor and the rapidly growing new poor comprise significant sections of Greek society: 20 per cent of children live in poverty, while Greece’s unemployment rate has topped 20 per cent for four consecutive years now and reached almost 27 per cent in 2013.

With youth unemployment above 50 per cent, many well-educated people have left the country. There is no access to free health care and the weak social safety net from before the crisis has all but disappeared. The dramatic welfare retrenchment combined with unemployment has led to austerity induced suicides and people searching for food in garbage cans in cities.

A continued commitment to the policies that have produced such outcomes in the name of increasing the EU’s competitiveness challenges the terms of the European Union’s founding principles. The creditors often rationalise this using a rhetoric that assumes tax-evading unproductive Greeks brought this predicament upon themselves – they are seen as the undeserving members of the euro zone.

Such reasoning creates an unhealthy political climate that gives rise to extremist nationalist movements in the EU such as the Greek criminal Golden Dawn party, which gained almost 10 per cent of votes in the last European Parliament elections.

Explaining the euro zone debt crisis as a morality tale is both deleterious and untrue. The problematic nature of such moralistic logic must be challenged: one cannot easily justify on ethical grounds forcing the working poor to bail out a banking system from which many wealthy people benefit, or transferring the consequences of reckless lending by commercial outlets to the public.

Nor can one explain the acquiescence of creditors to the machinations of the nepotistic self-serving corrupt elites dominating the state over the last 40 years that got Greece into the euro zone on false data and continue to rule it. As I have argued, the bailout money was given to the very people who are largely responsible for the crisis, while the general population of Greece is being made to suffer.

Greece’s voters are determined to stop the ruling classes from continuing their nefarious policies that have brought the country to the brink of catastrophe, but in the coming elections their real concern will be opposing the sacrifice of the futures of an entire generation.

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS-Inter Press Service.

Edited by Kitty Stapp

Excerpt:

Electric utility workers of the UTIER labour union protest for safer workplace conditions. UTIER spearheads the fight against privatisation and against the Puerto Rico government's unpopular emergency economic measures. Courtesy of Photo Jam

By Carmelo Ruiz-Marrero
SAN JUAN, Apr 15 2014 (IPS)

Puerto Rican society has been shaken to its foundations by the announcement in February by Standard & Poor’s and Moody’s credit rating agencies that they had downgraded the island’s creditworthiness to junk status.

“The problems that confront the commonwealth are many years in the making, and include years of deficit financing, pension underfunding, and budgetary imbalance, along with seven years of economic recession,” said Moody’s."Working people are faced with three choices: they can migrate, resign themselves to poverty, or go out to the street to organise and struggle for justice." -- Luis Pedraza-Leduc

Located in the Caribbean Sea, Puerto Rico has been a Commonwealth of the United States since 1952.

Moody’s added that the island’s worsening economic situation has “now put the commonwealth in a position where its debt load and fixed costs are high, its liquidity is narrow, and its market access has become constrained.”

In order to meet its debt obligations, the PR legislature has considered enacting fiscal measures that are strongly opposed by labour unions, including dipping into the public school teachers’ retirement fund. Law 160, the retirement “reform”, was approved by both House and Senate earlier this year.

Unions have headed to court to challenge the law. On Apr. 11, the Puerto Rico Supreme Court ruled some key provisions were unconstitutional because they breached teachers’ contracts.

Schoolteachers’ unions declared the ruling a triumph, although the court upheld other parts of the law that adversely affect Christmas bonuses, summer pay and medical benefits.

The current fiscal crisis is the result of the commonwealth economic model’s failure, according to union official Luis Pedraza-Leduc.

“Our economic model, based on providing cheap labour to the pharmaceutical and petrochemical industries and light manufacturing, has exhausted itself,” said Pedraza-Leduc, who runs the UTIER utility workers union’s Solidarity Programme (PROSOL) and is spokesperson of the Coordinadora Sindical, a coalition of over a dozen unions.

“In recent decades there has been a worldwide trend towards reducing state involvement in the economy to a minimum,” he told IPS.

“Things that were considered basic services provided by the state are now turned into commodities as private enterprise moves in to fill those spaces. Rather than reducing these essential services, the government went into debt.”

According to a chart provided by the office of PR Governor Alejandro Garcia-Padilla, the commonwealth’s public debt reached 10 billion dollars in 1987, when the Popular Democratic Party (PDP) ruled, and passed the 20-billion-dollar mark in 1998 under governor Pedro Rossello, of the New Progressive Party.

Under PDP governor Sila M. Calderon (2001-2004) the debt went over 30 billion dollars. And at the end of his 2009-2012 mandate, NPP governor Luis Fortuño left the country with more than 60 billion in debt. Garcia-Padilla belongs to the PDP.

Pedraza-Leduc recalls that successive governors undertook neoliberal measures that made matters even worse.

“Governor Rossello privatised the health sector, the phone company and the water utility. Governor Acevedo-Vila [of the PDP, 2004-2007] imposed a sales tax on retail sales [known as IVU],” he said.

Governor Fortuño laid off over 30,000 public sector workers, and introduced “public-private partnerships”, which were decried by labour unions as thinly disguised privatisation schemes. Upon beginning his mandate in early 2013, Garcia-Padilla privatised the San Juan international airport and is considering new taxes.

The Puerto Rico Constitution obligates the government to honour its debts.

“In order to pay bondholders, the government could close down schools, reduce the number of Urban Train daily trips, scale down 911 emergency phone services, and freeze the hiring of employees”, warned Pedraza-Leduc. “They are considering reducing Christmas bonuses and sick leave days.”

According to University Puerto Rico economist Martha Quiñones, “We are having here the same crisis as Greece and Detroit, but here it is broader because of our colonial situation.

“We had an economic model based on bringing foreign corporations and enticing them with cheap labour and tax incentives,” she told IPS, calling this the “exogenous” model, which is based on bringing investment from outside.

“It did not work. Not enough jobs were created, and the unemployed do not pay taxes. Locally owned businesses ended up picking up the tax burden that foreign investors were exempted from, which caused many of them to close. Local and foreign businesses were not competing in conditions of equality.”

Quiñones said that the model’s death knell was the North American Free Trade Agreement (NAFTA) and other similar trade deals that the U.S. has struck, which made even cheaper labour available in other parts of the world.

Successive Puerto Rico governments made up for these failures by requesting help from the U.S. government in the form of food stamps and unemployment benefits, and other forms of social assistance. Another way was by issuing bonds, which led to long-term debt and the current debacle.

As an alternative, Quiñones advocates an “endogenous” economic model, which strengthens local capabilities rather than looking abroad for deliverance. “The government must support locally owned businesses,” she said. “Those are the businesses that create jobs at home and pay taxes.

“The government must also collect the IVU sales tax, which most retailers simply pocketed. A progressive tax reform is needed, plus rich tax evaders must be brought to justice. Start by investigating businesses that take only cash, and individuals who are taking second mortgages. Those are pretty obvious red flags.”

She also advocates that the health system be changed to single payer, “which would be more efficient than the current inefficient and unsustainable health system we have now.

“Working people are faced with three choices: they can migrate, resign themselves to poverty, or go out to the street to organise and struggle for justice,” said Pedraza-Leduc.

But he admits that the prospects for all-out popular struggle are uncertain at best. “The lack of class consciousness complicates the outlook. Maybe we are not prepared for a confrontation,” he said.

To him, the way out of the impasse lies in education. “I propose an educational project, a Union School [Escuela Sindical] that can transcend the unions and branch out into broader issues and thus further the political struggle.

“And we need a new model for our country, we need to speak concretely about justice and a fair distribution of wealth.”

He also called for a reexamination of Puerto Rico’s relationship with the U.S. “Under our current status we are not allowed to sign trade agreements with other countries. We could be associating ourselves with other countries, and also get cheaper oil from Venezuela. But under our current status we cannot.”

After Hurricane Sandy struck Jamaica a year ago, critics say the country's recovery was hampered by the IMF budget. Credit: European Commission/cc by 2.0

By Samuel Oakford
UNITED NATIONS, Nov 18 2013 (IPS)

On May 23, shortly after wrapping up negotiations on the International Monetary Fund’s (IMF) 958- million-dollar loan – its second in three years – to keep Jamaica out of default, the fund’s mission chief in the country, Jan Kees Martijn, set out to visit Croydon, a former plantation settlement in the mountainous northwest of the island.

Also in Croydon that day was Verene Shepherd, professor of social history at the University of the West Indies and chair of the national reparations commission."There’s been a lot of talk about the new IMF... but what they are still pushing is from 15 years ago.” -- Jake Johnston

Shepherd was recording her weekly radio show, “Talking History” – she was marking the anniversary of the hanging of Samuel Sharpe, leader of the slave rebellion of 1831-32 – when she ran into Martijn being led through town by the local chamber of commerce.

The phlegmatic Dutch technocrat listened as Shepherd discussed the brutal history and economic legacy of slavery, one difficult to compute in dollars and cents (though Shepherd has, at 7.5 trillion dollars), but something that many in the region feel should at least footnote every budget shortfall and each emergency loan taken.

“I tried to tell him that you are looking at the end result of colonisation,” Shepherd told IPS. “It’s easy to say ‘you’re independent now, stop complaining’ but it’s very hard to distance what is happening now from the past.”

Though Shepherd was aware that in October Jamaica would be one of 14 Caribbean countries to sue Britain, France and the Netherlands for slavery reparations, she wished Martijn well, and the IMF team continued on to their heritage tour.

A towering crisis

Since 1990, there have been 37 debt restructurings in the Caribbean, a problem critics say international bodies like the IMF are woefully unprepared to tackle.

Barbados, Belize, Jamaica, Antigua and Barbuda, Grenada, St. Kitts and Nevis, and St. Lucia all have public debt higher than 80 percent of GDP; in Jamaica the figure is 143.3 percent.

Already this year, bondholders in Belize took 10-20 percent cuts, and in St. Kitts and Nevis, investors have seen 50-percent “haircuts” on their principal.

In a February report, the IMF found that the “main challenges for Caribbean small states looking ahead include low growth, high debt and reducing vulnerabilities from natural disaster.”

Yet even after issuing a mea culpa of sorts for pushing austerity in Europe following the 2008 financial crisis, the IMF turned around and insisted those very policies – ones that led to contractions and unemployment – were the only way out of the Caribbean’s fiscal mess.

“There’s been a split in their policies for rich countries and for developing countries,” said Jake Johnston, research associate at the Centre for Economic Policy Research (CEPR). “There’s been a lot of talk about the new IMF and in some cases they have been more lenient, but when you are talking about developing countries what they are still pushing is from 15 years ago.”

Despite successive loans from the IMF, Jamaica still spends around half its budget on interest payments, crippling the country’s ability to provide social services and prepare for natural disasters.

After Hurricane Sandy struck Jamaica one year ago, “they couldn’t repair or prepare for the next one because they were constrained by the IMF budget,” Johnston told IPS.

The IMF said it was unable to comment for this story because a team was currently in the country.

However, holding back spending can lead to a dangerous feedback loop: experts predict that for every dollar a country forgoes today on climate change mitigation, it will spend six or seven on disaster response in a few years’ time.

Media portrayals of the crisis tend to rely on sources in the IMF and investment community and adopt the same terse, tough-love language they favour that serves to distance themselves from people on the ground. Depictions often treat extreme weather and zero-growth economies as if in a vacuum, without interrogating their climactic or historical causes.

A history too quickly forgotten

Caribbean economies were ushered into independence underdeveloped and limited by colonial regimes that favoured primary exports over industrialization.

Countries came to rely heavily on preferential trade agreements that the EU offered former colonies.

The 1973 oil price shock forced many to take out dollar-denominated loans to pay for energy.

When interest rates in the U.S. shot up, payments on those loans ballooned and countries in the region had no choice but to accept the structural adjustment that accompanied IMF and World Bank bailouts, a position they’ve been in ever since.

To make matters worse, the U.S. successfully sued to end the EU concessions, effectively shuttering banana growers unable to compete with huge U.S.-owned plantations in Central America.

Before, “all the produce was sold and that was money in the pockets of people throughout the island, even in the smallest villages,” Father Sean Doggett, a catholic priest in Grenada, told IPS. “That came to a very sudden stop around 1998.”

Countries turned to tourism, but the recovery from the global financial crisis has been slow and uneven – in Grenada, unemployment doubled between 2008 and 2012.

Doggett and other members of the Grenadian Conference of Churches (COC) sat down with the IMF and the Grenadian government in October, proposing the creation of a “conference of creditors” to negotiate the terms of a two-thirds debt reduction and called on the IMF to attach greater importance to poverty reduction and unemployment.

In 2013, Grenada’s debt payments will amount to over 250 percent of what it spends on education and health.

“There is no way that Grenada can pay off its debt as it stands,” Doggett told IPS.  “We need to get out of this cycle of indebtedness and get on a development path that is more sustainable.”

“Having debt hanging around the neck of people forever and ever is contrary to the biblical concept of Jubilee, of debt forgiveness… this is as much an issue of justice and the building of a better society,” he said.

Though Grenada may one day serve as a model for more inclusive debt forgiveness in poorer countries, Johnston insists an international mechanism to settle sovereign debt disputes is needed.

“Companies go bankrupt, cities go bankrupt but when countries cannot pay their debt they end up being punished for it. It’s clear there is a need internationally and especially for the Caribbean that they have a mechanism to work these things out.”

At the Commonwealth Heads of Government Meeting in Colombo last weekend, countries discussed exploring a debt swap plan that would pay off the principal of heavily indebted countries with money already pledged by wealthier countries to combat climate change.

“In return for having their debt paid, countries would agree to set aside the principal amount into a trust fund to finance climate change mitigation” over 10 to 15 years, Travis Mitchell, economic advisor at the Secretariat, told IPS.

But for Shepherd, all of this misses the point.

“When we are talking to the international community, it’s always what you can do for us,” said Shepherd. “You need to own up to the exploitation and underdevelopment.”

For countries that are responsible for a miniscule portion of greenhouse gas emissions yet suffer the most from climate change, taking the money wouldn’t address the economic and moral offences that saddled them with debt in the first place.

Any payment, Shepherd says, should come as redress, not as a form of charity that lets the developed world clear its conscience.

“When you frame it in the post-2015 agenda and look at the (U.N.) Millennium Development Goals, you realise those aren’t realised without a change of attitude, otherwise you’ll be here talking about the same thing 50 years hence.”

Anti-poverty campaigners are celebrating the Norwegian government’s release of an external audit of all outstanding public debts it is owed by developing countries, the first time any country has undertaken such a process.

The investigation, by the international financial services company Deloitte, was conducted on aid packages offered by the Norwegian government to developing countries since the 1970s. Auditors were tasked with studying whether the deals, mostly concessional trade agreements, complied with past and present national guidelines as well as with newly established international principles.“The Norwegians clearly wanted to put out a test case that could be taken seriously." -- Eric LeCompte of Jubilee USA

The audit marks the first concrete use of what are known as the Principles on Promoting Responsible Sovereign Lending and Borrowing, established by a United Nations working group in April 2012 and still in the process of being rolled out. The Norwegian government has been a key supporter of the process of creating the principles, under the auspices of the U.N. Conference on Trade and Development (UNCTAD).

“This is really about setting a good example – as the first lending country to conduct such an audit, this is a very important first step in concretising and testing these principles,” Eric LeCompte, executive director of the anti-debt campaigner Jubilee USA, told IPS.

“The Norwegians clearly wanted to put out a test case that could be taken seriously, really moving the principles forward for the first time. Perhaps most interesting, while Norway is one of the world’s better lenders, Deloitte found that several of its past loans would not meet current standards of responsible lending.”

Jubilee USA is now calling on other countries, particularly those of the Group of 20 (G20) nations, to follow Norway’s example, conducting transparent debt audits to allow the public and civil society to see how decades’ worth of loans have been made. Given the new data, multiple groups are also calling on Norway to cancel certain debts.

“We hope the Norwegian government will take the next step of this critical audit and cancel illegitimate debt such as the debts of Egypt and Indonesia,” Gina Ekholt, director of the Norwegian Coalition for Debt Cancellation, said in a statement.

The audit report was explicitly written to act as a roadmap for future such exercises, noting pointedly, “The audit process has been conducted in such a manner that it may serve as a model for future debt audits.”

Interestingly, the Deloitte auditors also offer extensive feedback on the UNCTAD principles. In particular, they encourage the principles to become more explicit, and offer advice on ways in which they can become more operational.

They also offer some pointed specifics, including urging greater support for debt restructuring for developing countries. Jubilee USA’s LeCompte says this emphasis is “critical for getting us to the next place”.

“Fundamental cause of poverty”

In explaining his government’s decision to undertake the audit, Norway’s international development minister, Heikki Eidsvoll Holmas, said, “We are doing this to make sure that we are living up to our responsibility as a lender to developing countries.”

He added: “[T]he debt burden is hampering development in some poor countries. These countries are having difficulty servicing old debt agreements made on unfavourable terms. We now want to address this.”

The investigation covered 34 debt agreements with seven developing countries, according to the Norwegian government. While most of these are two to three decades old, their principals still add up to nearly 170 million dollars – and, once interest payments are included, approach four times that amount.

“Unmanageable debt burdens are one of the fundamental causes of poverty in developing countries,” the Norwegian Ministry of Foreign Affairs said in a statement.

“While the international community gives 141 billion dollars in aid to developing countries annually, the developing countries pay back 464 billion dollars each year to their creditors. Many of the debt agreements were entered into when economic, political and social conditions were uncertain.”

Indeed, this issue goes to the heart of one of the central contradictions to plague international development aid over the past half-century.

In the 1980s, for instance, the foreign debts taken on by developing countries more than tripled, to almost 420 billion dollars. Yet during that same decade, gross national product for these countries expanded only marginally, from 0.9 trillion dollars to 1.3 trillion dollars.

A more recent move towards debt restructuring and some debt forgiving notwithstanding, many countries are continuing to labour under those same repayments today.

Wild West

Although UNCTAD was not able to comment for this story by deadline, a representative for the body did laud the Norwegian audit when it was announced a year ago.

“To apply the UNCTAD Principles in the Norwegian debt audit is a solid way of showing that the Norwegian government takes the Principles seriously and that they take their responsibility as a creditor seriously,” Jostein Hole Kobbeltvedt, a member of the UNCTAD expert group, stated.

The UNCTAD principles on responsible lending and borrowing specifically aim to bring clarity to the international development lending relationship, advocating both greater accountability and responsibility. Part of the goal is ensuring that lending countries know that their loans can be repaid while also ensuring that receiving countries are not surprised by hidden contract provisions.

“Historically, and certainly now, these principles have not been part of the regulation of the international financial system – it’s still kind of like the Wild West out there. These are pretty straightforward principles that advocate for relatively minor levels of regulation that we’re currently missing,” Jubilee USA’s LeCompte, who was part of the UNCTAD working group, says.

“They also advocate for transparency in loan contraction. In other words, if I am a citizen of Zimbabwe, I should know what loans my government is taking out in an open, sanctioned, accountable government process. The Norwegian audit represents the threat of a good example.”

To date, 13 countries, including the United States, have endorsed the UNCTAD principles, but only as voluntary guidelines. LeCompte says his office is currently pushing to reintroduce U.S. legislation that would further concretise the principles, potentially impacting not only on U.S. policy but also on the lending guidelines used by some of the largest multilateral development lenders.

“We need legislation to ensure more binding action on this and to move the Treasury to use its vote in the International Monetary Fund and the World Bank to put forward these practices there,” he says. “Although some multilateral financial institutions have gotten better, I don’t think a single institution can say they’re adhering to these principles yet.”

The fate of countries with major debt problems is at stake in federal courts in New York, which are to decide in April whether or not they accept Argentina’s proposal to the bondholders who rejected two restructurings of sovereign debt.

Since Argentina defaulted on nearly 100 billion dollars in debt in late 2001, close to 93 percent of the bonds have been restructured at a deep discount, with lower interest rates and at longer terms.

But a group of hedge funds that refused to participate in the 2005 and 2010 restructurings sued for full payment of 1.3 billion dollars in Argentine bonds in federal court in New York.

On Tuesday, the 2nd U.S. Circuit Court of Appeals in New York declined to grant a full-court rehearing of a decision by a three-judge panel that went against Argentina in October, ruling that this country had to deal with all of its debt holders equally.

The suit not only threatens to return Argentina’s debt restructuring process to square one. Experts warn that it could have an impact on the decision-making capacity of other countries that run into severe financial difficulties at times of global crisis.

The government of centre-left President Cristina Fernández has until Friday Mar. 29 to present a solution for making the payments to the hedge funds.

The government says it will offer the holdouts the same conditions as the ones accepted by the rest of the creditors in the 2010 restructuring: discounts, lower interest and longer terms.

But that would involve a new debt swap, which would require congressional approval because a law passed after 2010 banned the reopening of debt restructuring.

Argentina is now financially stable and makes its debt payments on time, despite the fact that it lost access to global credit markets after the December 2001 default, which was announced in the context of an economic and social meltdown.

According to the latest report by the Economy Ministry, as of mid-2012 Argentina holds 183 billion dollars in debt, equivalent to 41.5 percent of GDP, one of the lowest proportions in Latin America. The report did not include the defaulted bonds.

Up to now, the Fernández administration had refused to settle with the hedge funds, referring to them as “vulture funds” – opportunistic investors who purchase the debt of heavily indebted countries cheap and then sue for full repayment.

The lawsuit in New York is led by hedge fund billionaire Paul Singer’s Elliott Management. The hedge funds acquired the Argentine bonds at 20 to 30 percent of their nominal value.

If the courts finally come down on the side of the hedge funds, Argentine assets could be embargoed internationally.

Some experts in Argentina believe the U.S. court will accept the Fernández administration’s proposal, in order to put an end to the dispute and to defend the credibility of global payment systems.

But others are more sceptical.

Fernando Porta, an economist with Centro Redes, a research institute in Buenos Aires, told IPS that if the courts in New York refused to recognise Argentina’s restructuring proposal, “a huge level of uncertainty would be introduced in the system.”

“The potential negative impacts would go beyond Argentina and would throw into question the operation of the international debt restructuring system when countries are having trouble meeting their payments,” he said.

Porta said that with respect to debt restructuring, there are no multilateral agreements setting rules, but merely precedents that give the process predictability.

For that reason, he believes Argentina’s proposal “will be accepted in the end,” although several other obstacles may have to be overcome first.

But analyst Fausto Spotorno with the Orlando Ferreres y Asociados consultancy was less optimistic. “I don’t think this proposal will be accepted by the holdouts,” he said.

In Spotorno’s view, the New York appeals court is unlikely to accept Argentina’s offer if it does not have unanimous support among the creditors. “The holdouts have the first-instance ruling in their favour, which means they aren’t going to accept a proposal with discounts and longer terms now,” he said.

The analyst said it was naive to believe that the court would take into account the impact that its decision could have on future cases of debt restructuring. “New bond issues contain clauses that prevent this problem,” he noted.

He was referring to collective action clauses (CACs), first proposed by Mexico in 2003, which since then have been included in bond issues to facilitate eventual restructuring.

CACs allow a majority of bondholders to agree to a legally binding debt restructuring. By forcing potential holdouts to accept the restructuring if a large majority of other creditors do so, it provides protection against vulture funds.

The clauses were used controversially by Greece in 2010, when it introduced them retroactively to restructure the country’s debt and avoid default, according to “Un ensayo sobre las Cláusulas de Acción Colectiva”, a paper on collective action clauses published in Mexico.

The study, published this year by Mexican economists Alejandro Castañeda and Pablo Newman in the Gaceta de Economía journal, says the new mechanism became widely used as a result of the threat posed by opportunistic creditors in the cases of Argentina and Peru.

The European Union has required the inclusion of CACs in all new eurozone bond issues since January.

But they had already been incorporated by most countries in Latin America and other regions, with varying minimum percentages of support required from bondholders.

In their report, the Mexican academics point out that the bonds issued by Argentina in its debt swaps contain CACs, but older rules requiring unanimous acceptance of new conditions apply to the bonds held by the holdouts.

Under the older rules, if one single bondholder rejects the proposed new financial terms, the process can be blocked by litigation which, if successful, can also benefit the rest of the bondholders – and seriously affect the state issuing the bonds.

But there are still countries with bonds issued in the 1990s that would be affected by a resolution against Argentina.

Thousands have protested against the austerity measures imposed on Greece by its creditors. Credit: George Laoutaris/CC-BY-ND-2.0

By Apostolis Fotiadis
ATHENS, Nov 9 2012 (IPS)

Ignoring the thousands of protestors gathered outside the Greek parliament on Wednesday, the government voted in public spending cuts amounting to 17 billion dollars in an economy already on its knees from a lacerated budget.

The government was promised 40 billion dollars of bailout money in exchange for the implementation of this fresh bout of austerity.

But the country’s creditors – the European Central Bank (ECB), the European Commission (EC) and the International Monetary Fund (IMF), known as the Troika – have fallen out over crucial disagreements about the terms of the financial “rescue” operation, resulting in a stalemate that has brought Greece to the knife’s edge.

It is obvious that a write-down of Greece’s 200-billion-euro debt, now owned by the European public sector, is sorely needed in order for Greece to avoid disorderly default.

In fact, a day before the election in the United States, even incumbent President Barack Obama threw his weight behind calls for a write-down.

But the EC and ECB are reluctant to accept losses, which the IMF has deemed “necessary”.

The handling of Greek debt has been a point of contention between the IMF management and European interests in and outside the Fund since Greece first asked its international creditors to rescue it from default back in May 2010.

Unable to survive its debt obligations, Greece entered into a 110-billion-euro loan deal with its eurozone partners and the IMF, conditional on the implementation of severe austerity measures.

The programme failed and the economy has all but imploded.

Peter Chowla, head of the London-based Bretton Woods Project, a non-governmental organisation that monitors IMF and World Bank activity, told IPS that it was obvious to most observers very soon after the program began that a second bailout agreement would soon follow.

He added “Even during 2010, many internal IMF reports warned that the Greek programme would not work out. Those were systematically ignored by the Fund’s leadership in order to present homogeneity of the Troika in negotiations with Greece.”

Meanwhile the main line inside the Fund gradually shifted away from European interests and closer to the positions of developing countries like India, Brazil and Russia, all of whom expressed doubts about the efficacy of the Greek plan.

Finally a compromise was struck between the IMF and the European financial institutions about the writing down of Greek debt to a level that might allow the programme to continue.

“In the spring of 2011, amid disagreements about the sustainability of Greek debt, the IMF warned, for the first time, of not offering any more money unless a debt restructure took place. European interests, inside and outside the Fund, finally had to accept this, but tried to limit their losses as much as possible,” Chowla explained.

In October 2011, the Troika offered a second 130-billion-euro bailout loan that not only demanded another austerity package, but also forced private creditors holding Greek government bonds to sign a deal accepting a 53.5 percent face value loss.

Soon after, it became clear that the second programme was wreaking havoc on a crumbling economy and would not put Greek public finances back in order.

And meanwhile, relations within the Troika kept deteriorating.

A confirmation of the depth of the fracture inside the Fund emerged this past July, when Peter Doyle, after two decades of service within the Research and Development branch of the Fund, resigned.

In his brief letter he criticised the IMF’s role in the Troika, blaming ‘European bias’ for constraining the Fund from exercising an impartial role.

Doyle charged that the IMF had compromised its independence, citing “suppression” of information that had been identified well in advance as a reason for the failure of the institution’s surveillance mechanism, which should have properly examined the impacts of the austerity plan.

Austerity shock therapy, according to Doyle, has caused the economy to disintegrate faster than expected and has brought “the second global reserve currency to the brink”.

Further evidence of the Fund’s responsibility in what is now a full-blown Greek crisis surfaced during the launch of the IMF’s autumn 2012 World Economic Outlook in Tokyo, where the IMF’s chief economist, Olivier Blanchard, acknowledged that the Fund’s surveillance models, used to dictate the terms of bailouts, were flawed.

Panagiotis Roumeliotis, Greece’s one-time representative to the IMF, confirmed to IPS that Doyle’s criticism is serious and valid.

He also provoked a high-profile investigation about the handling of the crisis by stating in an interview with the New York Times this August that the bailout plan was “condemned” from the start.

Domenico Lombardi, Italy’s former representative on the IMF’s executive board, says the impasse within the Troika is now reaching a total deadlock.

This August, the Fund refused to provide money to pay off a 3.2- billion-euro Greek bond held by the ECB, Lombardi told IPS. This was made up by an emergency bond sale by the Greek state.

A 5.5-billion-euro bond due to expire on Nov. 16 should be covered by anticipated bailout loans, but the IMF seems unwilling to participate in financing that either.

“Basically the IMF is not going to contribute in any meaningful way till the debt restructuring issue is agreed, formally or informally, explicitly or implicitly,” Lombardi told IPS.

He added that the entire joint programme would have to be restructured if the IMF pulled out at this late stage.

Given that the Greek economy will face an emergency liquidity problem next week, it hastily organised a short-term bond sale Friday to close the gap.

This debt is owned by the ECB, which has thus far refused to write down the debt or lower interest rates.

The situation has now become very dangerous, according to Lombardi.

The creditors may be able to buy some time “by lowering the interest rate on bailout money they have loaned to Greece,” he said.

But the most pressing issue is that none of the leading players seems to have any idea what is to be done in the long term.

(END)

Twelve years after a global campaign successfully advocated the cancellation of some of the world’s poorest countries’ public debt, developing economies are again facing unsustainable debt burdens. Only this time, it is the private sector’s debt in developing economies that is inflating dangerously.

Children in Otjivero, Namibia. Credit: Servaas van den Bosch/IPS

A recent report by the Jubilee Debt Campaign, a coalition of organisations supporting debt relief and increased transparency in global financial markets, highlights that foreign debt payments of the private sector in impoverished countries have increased from four percent of export earnings in 2000, to 10 percent on average in 2010.

“Some countries like Ethiopia, Niger or Mozambique continue to spend as much on debt service as before the rounds of debt cancellation in 2000,” Tim Jones, who authored the report, told IPS. The governments of El Salvador, the Philippines and Sri Lanka also continue to spend a quarter of government revenue on foreign debt payments.

Debt payments of the private sector are now double those of the public sector in many of the world’s most fragile economies, the ‘State of Debt’ report argues.

“Generally, public debt has decreased because of debt cancellation or better economic prospects, but the private sector has become dangerously indebted in many developing countries, threatening development achievements,” Jones explained. “Nothing has been done to prevent the build up of large debts in developing countries through a very liberalised global financial system,” he added.

Despite the international community agreeing to cancel up to 125 billion dollars for 33 countries since 2000 under the Heavily Indebted Poor Countries (HIPC) initiative, the International Monetary Fund and World Bank predictions foresee foreign debt payments in the least developed countries (LDCs) increasing by one-third over the next few years, the report argues.

The swelling of unsustainable debt, which has afflicted the South since the 1970s, is now causing panic in Europe as well. What is happening in Greece today mirrors what has been happening in the developing world, the Jubilee Debt Campaign argues, observing that history is repeating itself in a world where “lenders can go on lending with impunity and borrowers will always have to pay the price”.

The issue of unsustainable debt came to the world’s attention when Mexico first defaulted in August 1982. Mexico faced another debt crisis in the 1990s, followed by East Asia, Russia, Brazil, Turkey, and Argentina, due to excessive borrowing by the private sector.

The Campaign’s research estimates that “in the 1950s and 1960s, the number of governments defaulting on their debts averaged four every twenty years. Since the 1970s this has risen to four every year.”

“We now have a global financial crisis where people in the Western world are experiencing what many people across the global South have experienced for the last 30 years. It’s amazing how this ideology of liberalisation still holds so much sway,” Jones marveled.

“Some countries have tried to re-regulate international lending in recent years, like Brazil, which imposed a tax on short-term foreign money coming into the country; Iceland as well (whose entire banking system collapsed in 2008, the country’s three largest banks having accrued debt exceeding six times the national GDP) has had a very different response to the global financial crisis: its government refused to take on the banking sector’s foreign debt, largely because the people stood up and refused to do that. Iceland is now recovering far better than other countries from its debt crisis.”

“More countries have been backing regulations on how money flows in and out of their territory, but there are barriers in the system, such as World Trade Organisation (WTO) agreements,” Jones added.

Since 2000, 32 developing countries have qualified for debt relief, their debt payments reduced from an average of 20 percent of government revenue in 1998 to less than five percent in 2010, according to the report. In countries qualifying for debt cancellation, primary school enrolment has increased from 63 percent of children to 83 percent in ten years.

The Jubilee Debt Campaign has been advocating the creation of an international debt court able to cancel unsustainable debts, arguing, “Many developing countries have been, and continue to be, locked in a debtor’s prison.”

The increasing burden of debt is also strongly felt in developing countries that did not qualify for the HIPC scheme, such as Kenya.

“There isn’t enough thinking around debt management policies and development outcomes,” Kiama Kaara, who heads the Kenya Debt Relief Network programmes in Nairobi, told IPS.

“Loans and development financing must be tied to the national development agenda, otherwise we will end up with more useless, ‘white elephant’ projects that drain national resources,” he added.

Kenya’s public debt increased from 46.8 percent of GDP to 48.9 percent today, according to the Network.

“Borrowing makes economic sense, but the level of prudence should increase,” Kaara explained. “This is particularly worrying in countries where the political elite is the same as the economic elite; the appetite for increasing domestic debt benefits banks controlled by influential players, who profit from the private sector’s debt despite the obvious conflict of interest.”

At a national level, civil society is increasingly mobilising to have a stronger say on the level of debt incurred by governments. The Kenya Debt Relief Network has been drafting a ‘Responsible Borrowing Charter’ to gauge loans against the country’s macroeconomic indicators.

“The IMF has been seeking to create a new mandate on how to regulate the movements of money between countries, but it is still very weak,” Jones told IPS. “We are making the same mistake with the European debt crisis as with the Latin American debt crisis in the past, by thinking austerity is the answer, and it just creates further decline in the economy and suffering for the people on the ground.”

(END)

The changing international political order and a dramatic budgetary situation at home are forcing France to consider giving up the extremely expensive nuclear arsenal the country has maintained since the late 1950s.

To make this pressing necessity appear as a virtue, some French political leaders and analysts are attempting to posit the move as a step towards international efforts to update the Nuclear Non-Proliferation Treaty and reduce global nuclear arsenals.

But the simple truth is that the French government, facing a major budgetary crisis, can no longer afford to maintain a costly armoury that, as former minister of defence, Paul Quilès, put it, “isn’t supposed to be fired in the first place”.

Former prime minister Michel Rocard, a member of the ruling Socialist Party (SP), inadvertently opened the debate in mid-June during a television interview with the Paris-based broadcaster BFM in which he stated that by giving up its nuclear cache, “France would save 16 billion euros per year, and renounce a completely useless weapon.”

Later, Rocard called his statements “a joke”, and argued that discussing nuclear disarmament was “such a serious issue, that if you want to question it, you have to do it cautiously, and give yourself time to discuss it and to listen to serious arguments.”

But jokes aside, Rocard’s statement provoked an avalanche of debate without a definitive conclusion.

For the time being, Socialist President Francois Hollande has denied that his government has any intention of renouncing the nuclear weapon in the foreseeable future.

Hollande’s position is based on the old argument that nuclear power grants France an exceptional, albeit delusory, political status, placing it on a par with the other four permanent members of the United Nations security council: Britain, China, Russia, and the U.S.A.

Without the nuclear weapon, France would be reduced to its actual geopolitical role: of a middle-range power, battered by economic mediocrity and a volatile domestic climate.

“The end of the Cold War and the grand strategic mutations taking place right now (necessitate) a redefinition of the role of the nuclear arsenal in (France’s) global power considerations, and in our policy of national security,” Pascal Boniface, director of the Paris-based Institute for International and Strategic Studies, told IPS.

But Boniface warned, “If France were to renounce the nuclear weapon it would certainly degrade its credibility as an international power and provoke its own demotion on strategic affairs.”

Boniface recalled, “When Charles de Gaulle (in the late 1950s) decided to equip France with a nuclear arsenal, his objective was to maintain our country as a global power, along with the U.S.A. and the Soviet Union.”

In other words, for De Gaulle’s France, the nuclear weapon was more a geopolitical emblem than a military necessity. In a cryptic way, De Gaulle admitted as much, in an official statement issued in December 1961, at the height of the Cold War.

“In ten years’ time, we might need to kill 80 million Russian citizens,” De Gaulle said. “I believe that (the Soviet Union) wouldn’t attack somebody able to kill 80 million Russians, even if the (Soviets) themselves were able to kill 800 million French (citizens).”

France’s economic woes

Fifty years later, with memories of the Cold War fading into the realm of a bad nightmare, the possibility of having to kill 80 million Russians is as unthinkable as ever. France’s new national nightmare is the sovereign debt crisis, and a deteriorating economic performance in the international arena.

Hollande’s government, in office since mid-June, is this year facing an unexpected budgetary shortfall of up to 10 billion euros, on top of the previously anticipated deficit of 4.4 percent of the gross national product (GNP).

In a report released on Jul. 2, the country’s general accounting office warned that France would have to raise taxes and reduce expenses to meet the high deficit of 4.4 percent originally foreseen by Hollande’s predecessor, Nicolas Sarkozy.

According to European Commission figures, in 2013 France will have to increase revenues or reduce expenses by 24 billion euros to limit the deficit to three percent.

To add insult to injury, leading French enterprises, such as carmaker Peugeot, have announced massive layoffs and major industrial facility relocations abroad.

Hollande is thus left with a staggering political challenge: to simultaneously salvage state finances and support French industry to endure the present economic downturn and prepare a more competitive future.

According to various analysts and politicians, the temptation to reduce useless spending – especially on a purely symbolic nuclear arsenal – and instead invest in more rational endeavours, has never been greater.

Quilés, former chair of the parliamentary defence commission, told IPS that the “nuclear weapon is an expensive absurdity.” He dismissed arguments that the nuclear weapon constituted a “life insurance” for France. “It is more a death insurance,” he said.

He believes the costs of the French nuclear arsenal will most certainly increase in the immediate future, given the necessity to update weapons and procure expensive supplementary equipment, such as military submarines.

Retired general Bernard Norlain, head of the military cabinet at the prime minister’s office between 1986 and 1992, also called for nuclear disarmament.

“The arguments in favour of nuclear (arms) were pertinent at the time of the Cold War, but the global strategic situation has changed radically since 1990,” he told IPS. “We cannot continue arguing the same way as in the 1980s.”

Norlain, who has rallied behind the international project Global Zero, that calls for a world without nuclear weapons, noted regretfully that Hollande appears to be bowing to pressure to maintain a useless asset.

“Hollande’s declarations on the matter are extremely conformist,” Norlain pointed out.

But other military experts, who asked not be identified, said that no head of state would choose to go down in history as the one who unilaterally erased France’s status as a nuclear power.

(END)